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Vietnam and the United States have an interesting history of trade-economic cooperation. The two countries have a mutually beneficial trade relationship, and they are committed to working together to promote economic growth and prosperity in the region. The future of trade-economic cooperation between Vietnam and the United States is bright, and it is likely to continue to grow in the coming years.
The evolution of Vietnam-US relations
The United States is a major investor in FDI in Vietnam. Over the past 30 years, the situation of FDI from the United States in Vietnam has undergone significant changes, which can be classified into 4 stages:
Stage 1: From 1994 to 1999: The beginning of Vietnam - US trade relations
In February 1994, President Bill Clinton announced the complete lifting of the embargo against Vietnam. From then on, the foundation for trade between the two countries began to be established and prospered. On July 11, 1995, Vietnam and the United States normalized relations. Prime Minister Vo Van Kiet stressed that this decision was in line with the trend of international developments and would contribute positively to the cause of peace, stability, and development in Southeast Asia, as well as in the world. Vietnam and the United States opened embassies in each other's countries in August 1995 and exchanged ambassadors in May 1997. As of 1995, the total amount of US FDI in Vietnam reached $759.92 million.
Stage 2: From 2000 to 2006: The turning point in Vietnam - US bilateral relations
In 2001, the Vietnam–United States Bilateral Trade Agreement came into effect, marking a strong recovery and resurgence of trade between the two countries. The agreement came into effect in December 2001. All goods exported from Vietnam to the United States are granted most-favored-nation (MFN) tariff treatment, also known as unconditional normal trade relations (NTR). Thanks to the positive impacts that this agreement brought, US FDI in Vietnam from 2001 to 2006 changed dramatically, reaching $1.826.18 billion.
Stage 3: From 2007 to 2014: Strengthening Vietnam - US economic cooperation
The next period, from 2007 to 2010, FDI grew at an astonishing rate, reaching $9.625.6 billion, despite the global financial crisis of 2008 that cast a dark cloud over the world economy. The prominent event that opened this period was Vietnam's accession to the WTO in early 2007, marking a turning point in the flow of investment from the United States with investment capital concentrated in the areas of production and application of modern science and technology.
Notably, in July 2013, during President Truong Tan Sang's visit to the US at the invitation of his counterpart Barack Obama, the two sides established the Vietnam-US comprehensive partnership, which shaped a framework for bilateral relations for the new period as well as the development direction of the relationship in the coming years.
Stage 4: From 2015 until now: Leveraging bilateral cooperations between Vietnam - US governments
Vietnam-US relations have entered a new phase of development in recent years. This is evidenced by the fact that high-level visits between the two countries have become more frequent. Notable were the visits by Vietnamese Party General Secretary Nguyen Phu Trong in 2015, US President Barack Obama in 2016, Vietnamese Prime Minister Nguyen Xuan Phuc in 2017. Later in 2017, President Trump visited Vietnam and attended the Asia-Pacific Economic Cooperation (APEC) forum in Đà Nẵng. Recently, US Vice President Kamala Harris visited Vietnam in 2021, and Vietnamese PM Pham Minh Chinh attended U.S.-ASEAN Special Summit in May 2022. These visits have helped deepen the Vietnam-US comprehensive partnership, promote the development of the relationship on the basis of mutual benefits, equality and respect for each other's independence, sovereignty, and political institutions.
The characteristics of US FDI in Vietnam
Foreign direct investment (FDI) from the United States has played an important role in the economic development of Vietnam. In recent years, US FDI has become increasingly important, with the United States becoming the second-largest source of FDI in Vietnam. There are a number of characteristics that distinguish US FDI in Vietnam from FDI from other countries.
First, US FDI has a high research and development (R&D) intensity. This means that US investors are more likely to invest in projects that involve the development of new technologies. This is in contrast to FDI from other countries, which is often focused on more traditional industries. Foreign direct investment (FDI) from the United States is primarily for the production of sophisticated products that are based on high-tech, exclusive, and capital-intensive technologies that serve the host country's market.
Second, US investors have different goals and motivations than investors from other countries. US investors are more likely to be interested in the long-term potential of Vietnam, rather than simply looking to exploit short-term opportunities. They are also more likely to be interested in transferring technology and know-how to Vietnam. A study by the US-ASEAN Business Council found that 70% of US investors in Vietnam are interested in the long-term potential of the country, compared to only 40% of investors from other countries. Another study by the Vietnam Chamber of Commerce and Industry found that US investors are more likely to invest in projects that involve the transfer of technology and know-how to Vietnam, compared to investors from other countries.
Third, the level of technology absorption and the willingness to protect intellectual property rights in Vietnam are important factors that attract US FDI. In terms of the level of willingness to protect IP (PERC), Vietnam is only at an average level. Vietnam's legal system for establishing and enforcing intellectual property rights is still complex and unstable; there are still cases of copyright infringement, counterfeit and pirated goods. However, Vietnam has made significant progress in improving its business environment in recent years, and this has helped to attract more US FDI. These improvements are likely to continue in the future, as Vietnam seeks to attract even more foreign investment.
The emerging trends of US FDI in Vietnam
The year 2023 is an important milestone in Vietnam-US relations as it marks the 10th anniversary of the establishment of their comprehensive partnership (2013-2023). Twenty-eight years after the diplomatic ties were set up, and 10 years since the establishment of the comprehensive partnership, the Vietnam - US relationship has enjoyed all-round and substantive development, contributing to peace, security, cooperation and development in the region and the world.
Over the last decade, Vietnam has emerged as a major manufacturing center and has risen to become one of the top 10 trading partners for the United States. Based on U.S. Census Bureau data, bilateral trade in goods was nearly $139 billion in 2022, up 22% from 2021. The United States’ bilateral trade deficit in goods with Vietnam in 2022 ($116 billion) was the United States’ third largest. Vietnam is a major source for consumer electronics, furniture, mechanical appliances, apparel, and footwear imports. Notably, it is the second-largest source of U.S. clothing imports, after China. Top U.S. goods exports to Vietnam are cotton, civilian aircrafts and parts, semiconductors, soybeans, and various agricultural goods. The United States maintains a surplus in bilateral services trade, which in 2022 was around $1.6 billion.
Analysts predict that the United States will soon become the leading investor in Vietnam. In particular, at the Vietnam-US Summit, Under Secretary of Commerce for International Trade Marisa Lago stated that health care, digital trade, energy, and climate change will be the three priority areas for US businesses to cooperate with Vietnam in 2023. This is also in line with Vietnam's new FDI attraction strategy, which is to place a greater priority on attracting high-tech projects, digital transformation, and especially clean energy investment projects.
To wrap up ...
Vietnam and the US are continuing to strengthen the Vietnam-US Comprehensive Partnership. There is no doubt that Vietnam-US relations are at the best stage since the end of the Vietnam War. Vietnam is the only Southeast Asian country in the top 10 of U.S. trading partners, and American manufacturers increasingly consider Vietnam as an alternative destination to China.
Thus, it is an ideal time for the US investors to seize the opportunities! Reach out to us if you need support with setting up a company in Vietnam. With our specialized knowledge and experience in Vietnam and global markets, as well as legal procedures across diverse majors and sectors, we will walk you through the challenges. Don't miss your chance to be part of this transformative journey. Take action now and explore the possibilities of doing business and investing in Vietnam.
